Practical Problems on Customs

Theory relevant to practical problems:

Valuation under Customs:

1. Tariff Value as prescribed under section 14(2) of the Customs Act : In this case, the value of the
goods will be available in the Tariff Act. Hence, independent valuation is not required. Both value as
well as tax/duty rate will be available in the Tariff Act. Duty to be calculated accordingly.

2. Value or assessable value or customs value as prescribedunder section 14(1) of the Customs Act:

This value is called as the value, assessable value or customs value. This is based on the transaction
value i.e., the value at which the goods are sold and bought. There are certain conditions for
acceptance of transaction value as the value. They are:

1.The price should be one at which such or like goods are ordinarily sold or offered for sale.

2. The price should be for delivery at the time and place of importation or exportation.

3. The price should be in the course of international trade.

4. The seller and buyer should have no interest in the business of each other.

5. The price should be the sold consideration for sale or offer for sale.

If all the above conditions are fulfilled, then the transaction value can be taken as Value. If not, the
required additions / deletions will have to be made to the transaction value to arrive at the Customs
Value or Assessable Value.

What are the inclusions and exclusions:

Inclusions: (If not already included)

1. Commission paid to Indian Agent, whether by the importer or exporter. But, the commission
paid to agent abroad should not be included.
2. Packing cost, including packing labour.
3. Value of goods supplied by buyer. (Suppose the exporter exports a machinery at FOB $ 2000
and the Indian Importer has supplied drawings to the exporter worth $ 200, the exporter,
while charging will not consider $ 200 because, the exporter has not met that expenditure.
In that case, to arrive at the proper value of the goods $ 200 to be added to FOB, to arrive at
CIF Price. Similarly, if the importer has lent some financial assistance, free of cost / interest,
say Rs.12 Lakhs for 4 Months (between order date and delivery date), then, the interest
amount will be Rs.40,000 at 10% for 4 months. The exporter would have charged less to that
extent. To arrive at the proper value of goods, such amount is to be added to FOB to arrive
at the correct CIF price. On the other hand, if the importer charges for the drawing and also
charges interest on funds lent, then there is no need to add them back, because, the
exporter will not reduce the FOB in such cases.
4. Royalty and Licence Fee incurred by the importer.
5. Value of subsequent resale, to be paid to exporter.
 6. Other payments made to exporter, having nexus with goods imported.
7. Cost of transport upto Indian Port from Port abroad. This cost is restricted to 20% of FOB. If
the transport cost is not given in the problem, 20% of FOB is to be taken as transportation.
If, transportation charges is given, it should be considered at its actual or 20% of FOB,
whichever is lower.
8. Landing charges like unloading and handling charges in Indian Port should be considered at
1% of CIF, irrespective of actual.
9. Insurance cost should be included at its actual. If insurance is not given, then only it should
be calculated at 1.125% of FOB.

Exclusions: (if not already excluded)

1. Charges for construction, erection, assembly, maintenance or technical assistance under

taken after importation of plant, machinery or equipment.

2. Cost of transportation after importation of goods from Indian Port to the place of business
of the importer.

3. Duties and taxes in India

Rate of Duty: The rate of duty as prevailing on the date of presentation of bill of entry alone should
be considered. The rates prevailing on any other date should not be considered.

Rate of Conversion: The rate of conversion under section 14(3)(i) of Customs Act, which is also
called as rate as per CBEC should be considered. Other conversion rates like inter Bank Closing
Rates, RBI Floor Rate or the rate at which importer actually released payment etc., should not be
considered.

FOB and CIF:

FOB stands for Free on Board. It means, FOB price will be inclusive of value of goods, transport,
insurance, loading and unloading charges in the exporter’s country, i.e., from the place of business
of the exporter to the port or air port in exporters Country. These are includable for valuation
purposes. But, the price quoted by the importer will be inclusive of all these. So, FOB price is a price
that is quoted by the exporter for the goods and for all expenses upto the point of loading these
goods in exporters country, on board of a ship or an air craft.

CIF: Cost, Insurance and Freight.

The Cost is nothing but the aforesaid FOB.

The insurance is the transit insurance from exporters country to importers country. If insurance
expenses are given in the problem, the same should be considered. If it is not given, then only it
should be calculated at 1.125% of FOB. Here FOB means the FOB as given in the problem. If the
transaction value is altered due to supply of materials by importer or supply of interest free funds,
etc., such altered amount should not be considered to calculating 1.125%.

Freight: Freight for transportation of goods from exporter’s country to Indian port or air port. If
Freight is given in the problem, the actual freight or 20% of FOB as given in the problem, whichever
is less is to be considered. If the transaction value is altered due to supply of materials by importer
or supply of interest free funds, etc., such altered amount should not be considered to calculating
20%. If freight is not given in the problem, it should be considered at 20% of original FOB as given in
the problem.

Landing Charges: The landing charges means the expenses of un-loading and handling charges in
Indian Port for unloading the goods. This is always calculated at 1% of CIF. For the purpose of CIF, all
additions made like goods supplied by the buyer, interest free finance etc., should be considered and
1% on such value will be the landing charges, irrespective of the actual expenses incurred. It means,
the actual expenses incurred for un-loading goods in Indian Port or handling charges in Indian port is
not the criteria for calculation of Landing Charges.

While solving the problem, make sure that you are adding amounts of same currency. If not convert
the currency uniformly into rupees and then only do the additions or deductions.

Calculation of customs and other duty on Assessable Value:

Bassic Customs Duty : This duty is levied on almost all imports, at the rates specified in Customs
Tariff Act. The duties are of 2 types. (1) Preferential Area Duty (2) Standard Rate. Preferential area
rate means the concessional rate, when imports are from certain countries, with which India has
Trade Agreements. Standard Rate, which may be equal to or more than preferential area rate, is
applicable if imports are from other countries, where such trade agreement does not exist.

Additional duty or Countervailing Duty (CVD): This duty is levied on goods imported, which is
according to the Central Excise Act, to compensate the loss of Revenue on account of Excise duty,
because, the manufacture has not taken place in India. However, if the importer is a manufacturer,
he can avail CENVAT credit, like input tax under KVAT Act. In the problem, it may be stated that, if
similar machinery / equipment is manufactured in India, the Excise duty payable would have been
xx%.

Special Additional Duty or Special CVD: This duty is levied to compensate the loss of Sales Tax. This is
charged at 4% (CST Rate). If the importer is a trader and sells the imported goods, this tax is not to
be calculated, because, he will be liable for payment of the same at the time of sale. If it is not meant
for sale, then, SAD is to be calculated at 4%.

Method of Calculation: The following is the solution for calculation of customs duty, on goods having
an assessable value of Rs.10,000, where Customs duty is at 16%, Additional Duty or CVD 12%, Special
Additional Duty or Special CVD is 4% and cess at 2% and 1% being Primary education cess and
secondary and higher education cess, respectively. Calculate the total duty payable.

Particulars Ref. Amt.(Rs.) Amt.(Rs.)

The importer intends to resell the Imports does not re sell
goods. but uses it in production
or manufacture or as
fixed assets.
Assessable Value A 10,000 10,000
Basic Customs Duty at B 1600 1600
16% on (A)
Total (A + B) C 11600 11600
Additional Duty or CVD D 1392 1392
at 12% on (C)
Total of Customs duty E 2992 2992
and CVD (B + D)
Primary Education Cess F 59.84 59.84
at 2% on Customs and
Excise/CVD Duty – on E
Secondary and Higher G 29.92 29.92
Education Cess at 1% on
Customs and
Excise/CVD Duty – on E
Total of Assessable H 13081.76 13081.76
Value, duties and Cess.
(A + E + F + G)
Special Additional Duty I Not Applicable 523.27
(SAD) or Special CVD at
4% on H
Total Duty and Cess J 3081.76 3605.03
Payable (E+F+G+I)

1. An importer imported an equipment for FOB $ 1000. The bill of entry was presented on 10-04-
2014. The unloading and handling charges in India amounted to Rs.430. You are required to
calculate the Assessable Value. Conversion rates are as follows:

Particulars On the date of placing On the date of On the date of

the order presentation of Bill of clearance of goods by
Entry Customs Authorities
Inter-Bank Closing rate Rs.55 per $ Rs.60 per $ Rs.66 per $
RBI Floor Rate Rs.57 per $ Rs.62 per $ Rs.69 per $
Rate as per Customs Rs.59 per $ Rs.64 per $ Rs.67 per $
Act u/s.14(3)(i)
Ans:

Particulars Amt in $ Amt.in Rs.

FOB Value 1,000.00
Add: Insurance 1.125% 11.25
Add: Freight 200.00
CIF 1,211.25
Conversion Rate as per Rs.64 per $ 1,211.25 x
Sec.14(3)(i) on the date of 64
presentation of bill of entry. =77,520
CIF in Rupees 77,520.00
Add: Landing Charges 1% 775.20
Unloading and handling charges
Rs.430, i.e., actual, never to be
considered. It is always at 1% of
CIF
Assessable Value 78295.20
2. The CIF value of a machinery imported from USA amounted to $ 1,20,000, which included $ 800
Insurance and $ 30,000 Freight. The rate of exchange amounted to Rs.65 per $. Calculate Assessable
Value.

Ans. The Cost (FOB), Insurance and Freight together is $.1,20,000. From this amount, deduct
Insurance and Freight to get FOB Value.

CIF $ 1,20,000

Less: Insurance $ 800

Less : Freight $ 30,000

C or Cost (FOB) $ 89,200

Now, starting from FOB, the problem can be solved as follows:

Particulars Amt in $ Amt.in Rs.

FOB Value 1,20,000.00
Add: Insurance at actuals 800.00
Add: Freight 24,000.00
Given $ 30,000
20% of FOB $ 24,000
Whichever is less
CIF 1,44,800
Conversion Rate as per Rs.65 per $ 1,44,800 x
Sec.14(3)(i) on the date of 65
presentation of bill of entry. =94,12,000
CIF in Rupees 94,12,000.00
Add: Landing Charges 1% 94,120.00

Assessable Value 95,06,120.00

3. The Landing charges in respect of a consignment imported amounted to Rs.1,500. You are
required to find out the Assessable Value.

Ans: The landing charges is calculated at 1% if CIF. The amount of landing charges Rs.1,500 is 1% of
1,50,000 which is the CIF. Adding CIF and landing Charges i.e., Rs.1,50,000 + 1,500, we get the
assessable value as Rs.1,51,500.

4. ‘A’ imports by air from USA a Gear cutting machine complete with accessories and spares. Its
HS classification is 84.6140 and Value US $ f.o.b. 20,000. –

- Other relevant date/information:

1) At the request of importer, US $ 1,000 have been incurred for improving the design, etc. of
machine, but is not reflected in the invoice, but will be paid by the party.
(2) Freight - US $ 6,000.
(3) Goods are insured but premium is not shown/available in invoice.
(4) Commission to be paid to local agent in India Rs. 4,500.
(5) Freight and insurance from airport to factory is Rs. 4,500.
(6) Exchange rate is US $ 1 = Rs. 45.
(7) Duties of Customs : Basic – 20% CVD – 16%, Education cess on duty – 3%. Special CVD under
section 3(5) of Customs Tariff Act is applicable. –
- Compute (i) Assessable value (ii) Customs duty. How much Cenvat can be availed by importer, if he
is manufacturer?
Ans:

Particulars Amt. $ Amt.Rs. @

exch rate of
Rs.45
FOB Value 20000 900000
Add: Design Charges incurred by Importer 1000 45000
Freight Charges ($ 6,000 or 20% of 20,000) 4000 180000
whichever is less
Insurance – not given –Hence, 1.125% of FOB 225 10125
Commission to Agent in India 4,500
Freight and Insurance from Port to Factory 0
(Post Clearance. Hence, not considered)
CIf Value 1,139,625.00
Add: Landing Charges at 1% 11,396.25
Assessable Value 11,51,021.25
Basic Customs Duty at 20% 2,30,204.25
Value for levy of CVD 13,81,225.50
CVD at 16% 2,20,996.08
Total of Customs Duty and CVD 4,51,200.33
Cess at 3% (2% + 1%) 13,536.00
Total of A.V, Duties and Cess 16,15,757.58
SAD or Special CVD at 4% 64,630.30
Total Duty Payable 5,29,366.63
If the importer is a manufacturer, the CVD and Cess onCVD credit can be availed by him, i.e., CVD
Rs.2,20,996.08 + 3% on 2,20.996.08 Rs.6,629.88, aggregating to Rs.2,27,625.96 can be availed as
credit.

5.Hari India Ltd. Has imported a machinery whose assessable value is 100000. Rate of basic customs
duty is 10%, additional duty of customs under section 3(1) is 12%, additional duty of customs
under section 3(5) IS 4% and education cess is 3% on duty. Compute the amount of total customs
duty payable by Hari India Ltd.

Solution: Computation of Customs duty payable:

Sl. No Particulars Amount

1 Assessable Value 1,00,000
2 Basic Customs duty @ 10% 10,000
3 Sub-Total 1,10,000
4 Additional duty of customs ( CVD) 13,200
@12% of 1,10,000 i.e. ( 13,200)
5 Education cess 3% of 23,200 [(2) + (4)] 696
6 Total customs duty payable before 23,896
 special CVD [(2) + (4) + (5) ]
7 Special CVD @ 4% of [(1) + (6) ] 4,956
8 Total customs duty payable [(6) + (7) ] 28,852

6.T Ltd. Imported some goods form LMP Inc. of United States by air. The assessable value of such
goods is 1,00,000 $. The bank had received payment form the importer at the exchange rate of US $
1 = Rs.46, while the CBEC notified exchange rate on the relevant date was US $ 1 = Rs.45.50. Basic
customs duty is 10%, additional duty of customs under section 3(1) is 12%, and education cess is 3%
on duty. Additional duty of customs under section 3(5) is not applicable. Compute the amount of
total customs duty payable.

Solution:

Exchange rate per CBEC = 45.50 per US $ (See Note Below)

Assessable value (in rupees) = 45.50 × 100000 US $ 4550000
Note: The applicable exchange rate shall be 45.50 Per US $ because explanation to section 14(1)
provides that rate of exchange shall be the rate as notified by CBEC

Computation of customs duty payable:

Sl. Particulars Amount

No
1 Assessable Value 45,50,000
2 Basic Customs Duty @ 10% 4,55,000
3 Value for levy of CVD 50,05,000
4 Additional duty of Customs (CVD) @ 12% on 50,05,000 6,00,600

5 Education Cess 3% of duties i.e., Rs.4,55,000 + 6,00,600 = 31,668

10,55,600 [(2) + (4)]
6 Total customs duty payable [(2) + (4) +(5)] 10,87,268

7. Jagat Corporation Limited imports a machinery from US. The details of the transaction are as
follows

Authority Rate of exchange

CBEC 1 US $ = 50
RBI 1 US $ = 49.10

Assessable value of the machinery is $ 1,51,500.

Rate of basic custom duty is 10%

Rate of education cess is 2%

If similar machinery is manufactured in India (Means Additional Duty or CVD), excise duty payable as
per Tariff is 12%.

Special CVD is Nil.

Calculate assessable value and total duty payable thereon.

Solution: Computation of total custom duty payable:

Particulars Amount
Assessable value (in) = $ 1,51,500 × 50 ( Refer note 75,75,000
below)
Add: Basic custom duty @ 10% ( 7575000 × 10%) 7,57,500

Value for the purpose of levy of CVD 83,32,500

Add: countervailing duty (8332500 × 12%) Education 9,99,900

cess
Primary Education Cess [(757500+999900)×2%] 35,148
Secondary and Higher Education Cess 17,574
[757500+999900) × 1%]
Total custom duty payable ( 757500 + 999900 + 35148 18,10,122
+ 17574)
BAGGAGE RULES AT A GLANCE
Every passenger entering Indian has to pass through a Customs check. He / She must fill up the
Disembarkation Card clearly mentioning the quantity and value of goods that he has brought. On his /
her arrival the passenger is first cleared by Immigration Officer, who retains the Immigration portion of
the Disembarkation Card. Thereafter the passenger takes the delivery of his/her baggage from the
conveyer belts & passes through Customs. The passenger has the option of seeking clearance
through the Green Channel or through the Red Channel subject to the nature of goods being carried.

GREEN AND RED CHANNELS

For the purpose of Customs clearance of arriving passengers, a two channel system has been
adopted.

(i) Green Channel for passengers not having any dutiable goods.
(ii) Red Channel for passengers having dutiable goods.

However,
(i) All the passengers shall ensure to file correct declaration of their baggage.
(ii) Green channel passengers must deposit the Customs portion of the disembarkation card to the
Customs official at the gate before leaving the terminal.
(iii) Declaration of foreign exchange/currency has to be made before the custom officers in the
following cases :
(a) where the value of foreign currency notes exceed US $ 5000 or equivalent
(b) where the aggregate value of foreign exchange including currency exceeds US $ 10,000 or
equivalent
- Passengers walking through the Green Channel with dutiable / prohibited goods are liable to
prosecution/ penalty and confiscation of goods.
- Trafficking of Narcotics and Psychotropic substances is a serious offence and is punishable with
imprisonment.

DUTY FREE ALLOWANCES AND ENTITLEMENTS FOR INDIAN RESIDENTS

AND FOREIGNERS RESIDING IN INDIA
A Resident means a person holding a valid passport issued under the Passports Act,1967 and
normally residing in India.
Duty Free For Passengers coming from For Passengers coming from
Entitlements for Countries other than
Bonafide Baggage 1.Nepal, Bhutan, Mynmar or China 1.Nepal, Bhutan, Mynmar or China
2.Pakistan by Land Route 2.Pakistan by Land Route
Age 10 yrs and Age below 10 Age 10 yrs and Age below 10
above years above years
Used Personal
effects (excluding
jewellery) required FREE FREE FREE FREE
for satisfying daily
necessities of life.
Other articles
carried in person or
in accompanied
baggage.

a)If stay abroad for Valued upto Valued upto Valued upto Valued upto
more than 3 days. Rs.35,000 Rs.15,000 Rs.6,000 Rs.1,500

b)if stay abroad Valued upto Valued upto Valued upto Valued upto
upto 3 days. Rs.15,000 Rs.3,000 Rs.6,000 Rs.1,500

# Notification No.37/2012 dated 23.04.2012

Note:
1. The free allowance shall not be pooled with the free allowance of any other passenger.

2. The free allowance is not applicable to the following goods

1. Fire arms.
2. Cartridges of fire arms exceeding 50.
3. Cigarettes exceeding 200 or cigars exceeding 50 or tobacco exceeding 250 gms.
4. Alcoholic liquor or wines in excess of 2 litres.
5. Gold or silver in any form, other than ornaments.

3. One laptop computer (notebook computer) over and above the said free allowances mentioned
above is also allowed duty free if imported by any passenger of the age of 18 years and above.

4. The goods over and above the free allowances shall be chargeable to customs duty @ 35% + an
education cess of 3% i.e. to say the effective rate is 36.05%.

5. Alcoholic drinks and tobacco products imported in excess of free allowance are chargeable to
custom duty at the rates applicable to their commercial imports as per the Customs Tariff Act,
1962.

6. Passengers normally resident of India who are returning from a visit abroad Indian currency upto
Rs. 7,500 is allowed.

7. In case the value of one item exceeds the duty free allowance, the duty shall be calculated only on
the excess of free allowance.

Table Showing the exempt baggage, baggage chargeable at baggage rate and items not regarded as
baggage and chargeable at commercial import rate.

Baggage Exempt Baggage exempt Items not considered

subject to limit and as baggage, hence,
chargeable at 35% + instead of baggage
3% Cess i.e., 36.05 %. rate of 36.05%, the
Baggage in itself is a relevant tariff entry to
classification for any be applied and duty to
goods falling under be paid accordingly.
baggage limits.
Personal Effects ( 1.Fire arms.
Excl. Jewellary)
required for satisfying
daily necessities of
life.

One Lap-top (Note

Book) for Passengers
of 18 yrs and above.
2. Cartridges of fire 2. Cartridges of fire
arms not exceeding arms exceeding 50.
50.

3.Cigarettes not 3.Cigarettes

exceeding 200 or exceeding 200 or
cigars not exceeding cigars exceeding 50 or
50 or tobacco not tobacco exceeding
exceeding 250 gms. 250 gms.

4. Alcoholic liquor or 4. Alcoholic liquor or

wines in upto 2 litres. wines in excess of 2
litres.
5. Gold or silver in the 5. Gold or silver in any
 form of ornaments. form, other than
6. Any other items, ornaments.
considered as
baggage.

1. An Indian resident, who is of the age of 26 years, returning to India, furnishes the following details
of his baggage.
a. Personal effects like cloths etc., Rs.36,000
b. 10 Gms Gold Valued Rs.30,000 and 500 Gms Silver Valued Rs.25,000. (In the form of Ornaments)
c. 1 Lap Top Rs.35,000
d. 3 Litres of Liquor Valued Rs.6,000.

What is the duty payable if he is returning after stay of 15 days from.

(a) Countries other than (1).Nepal, Bhutan, Mynmar or China or (2) Pakistan by Land Route
(b) (1)Nepal, Bhutan, Mynmar or China or (2) Pakistan by Land Route

(a) The Limit of General Free Allowance in this case is Rs.35,000.

Calculation of Dutiable Baggage and duty payable:
Particulars Exempt Baggage Not A
Baggage Subject to Baggage
Limit Hence,
Commercial
Rate
Applicble.
Personal Effects like 36,000
cloths etc.,
10 Gms of Gold and 500 55,000
Gms Silver as ornaments.
1 Lap Top 35,000
3 Litres of Liquor. 4,000 2,000
Total 71,000 59,000 2,000
Exemption Limit NA 35,000 NA
Dutiable Baggage / Goods NIL 24,000 2,000
Rate of Duty 35% + Cess Commercial
Rate
Customs Duty on 8,400 No need to
Baggage calculate
duty.
Education Cess 3% 252
8,652

2. Anil, resident in Mumbai, went to France for a holiday for seven days. On his way back, he brought
in three one Liter bottles of alcohol. each priced at Rs.1200. Does he need to pay any duty?

Ans: Mr.Anil falls under exemption category limit of Rs.35,000.

Particulars Exempt Baggage Not A

Baggage Subject to Baggage
Limit Hence,
Commercial
 Rate
Applicble.
3 Litres of Liquor. 2,400 1,200
Total 2,400 1,200
Exemption Limit NA 35,000 NA
Dutiable Baggage / Goods NIL NIL 1,200
Rate of Duty 35% + Cess Commercial
Rate
Customs Duty on NIL No need to
Baggage calculate
duty.
Education Cess 3% NIL
NIL
3. Deep, resident in Delhi, visited his relatives in London for 15 days. On his way back, he brought in
the following items: One laptop for Rs. 50,000, two one litre bottle of alcohol for Rs.2800 and a new
mobile phone for 40,000. Are the imports by Deep dutiable ?

Deep falls in the category (a) in the annexure above. Hence, the General Free Allowance is upto
Rs.35,000.

Particulars Exempt Baggage Not A

Baggage Subject to Baggage
Limit Hence,
Commercial
Rate
Applicble.
1 Lap Top 50,000
2 x 1 Litre of Liquor. 2,800
New Mobile Phone 40,000
Total 50,000 42,800 NIL
Exemption Limit NA 35,000
Dutiable Baggage / Goods NIL 7,800 NIL
Rate of Duty 35% + Cess Commercial
Rate
Customs Duty on 2,730 No need to
Baggage calculate
duty.
Education Cess 3% 82
2,812
4. A husband and his wife, resident in Delhi, visited Germany for seven days and brought the
following things: anew camera for Rs.25000, a watch for Rs. 18000 and a mobile phone for Rs.
22000, The explanation to the annexutre mentions that the free allowances of the passengers
cannot be pooled together.

The goods brought in are Camera, Watch and Mobile totalling to Rs.65,000. The baggage notification
does not provide for pooling of baggage i.e., Husband limit Rs.35,000 and Wife Limit 35,000, totally
the combined limit will be Rs.70,000. Hence, they should restrict to their individual limit only.

1. Camera having the highest value, may be claimed by Husband. His limit is Rs.35,000,
whereas the value of goods is Rs.25,000. Camera will not be taxed.
2. Watch and Mobile, put together is valued at Rs.40,000. Limit of Wife is 35,000. The baggage
duty is to be paid on 5,000.
3. Customs duty at 35% will be Rs.1,750 + Cess at 3% Rs.53. Total duty payable will be
Rs.1,803.
*****